Federal Reserve is accelerating key interest rate hikes

Texas A&M Kingsville professor explains the impact
Posted at 7:04 AM, Jun 16, 2022
and last updated 2022-06-16 11:34:09-04

The Federal Reserve is accelerating key interest rate hikes in light of record-high inflation.

On Wednesday, the central bank announced a rate increase of 0.75% — a sign it is acting more aggressively to fight rising consumer prices. It's the first time since 1994 that the Fed has raised the rate that much.

The three-quarter-point hike brings the federal funds rate to between 1.5% and 1.75%. The federal funds rate dictates what it costs for banks to borrow money from each other. And, generally, higher interest rates mean it's more expensive for consumers to get a mortgage, obtain a loan to buy a vehicle and to carry a balance on a credit card.

The expected effect of these changes is that consumers will spend less and the heightened demand for goods — one of the drivers of inflation — will slow down. More increases are expected in the future.

“Expect one more of these, its not quite clear exactly how effective its going to be, but assume before the end of the year another .5 to .25 increase," said Hans Schumann, Ph.D. an economic professor at Texas A&M Kingsville